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Due Diligence Checklist–Clearing Marking Issues (Part 3 of 5)

Part 3 of 5:

When purchasing a patent asset, you must determine whether or not the seller, previous owners, and all licensees complied with 35 USC 287’s marking requirement.

The statute’s marking requirement requires that if a patent owner or licensee sold a product that embodied a patented invention, then the product must have been clearly marked with the respective patent numbers.  If the previous owner or licensee failed to mark such a product, then this failure may adversely affect the patent asset’s monetization potential.

Namely, when you file a patent infringement suit, you are entitled to a six-year lookback period in which you are allowed to collect damages six years prior to the filing of the lawsuit.

If a patent owner failed to comply with the marking statute, then you (the new patent owner) will only be entitled to damages at the point you provide notice of infringement to a potential licensee.  Typically, this falls on the date you file the lawsuit.

This means that if a patent owner or licensee failed to comply with the marking statute, you may lose six years of damages.  This may significantly undermine the patent’s monetization potential.

To determine if the previous owners or licensees complied with the marking statute, determine the following:

1) Was there a product for sale that embodied the claims of the patent asset you are attempting to purchase?  If there was no sale by either the previous patent owners or licensees, then there was no obligation to mark, and you will not lose the six-year lookback period.

2) If there was a product for sale that embodied the claims of the patent asset, did the previous owner or, if any, licensees mark the products?  If yes, then so long as the product was clearly marked (e.g., on the outside packaging, on the product itself), then you will not lose out on the six-year lookback period.  In this scenario, ask for a sample product that was sold and look for the proper markings.  If the seller cannot furnish a sample product, then insist that the seller represent and warrant in the patent purchase agreement that all previous owners and licensees complied with its marking obligations.

3) On the other hand, if there was a product for sale that embodied the claims of the patent asset and a previous owner or licensee did not mark the products, then your lookback period may be at risk.

3i) If it is a patent owner that failed to mark, see 3iii below.

3ii) If a licensee failed to mark, look at the corresponding license agreement and, specifically, look to see if the license agreement included an obligation to mark.  If the license agreement included an obligation to mark but the licensee failed to do so, then you will not lose your six-year lookback period.  But if the the licensee failed to mark and if the license agreement failed to include a marking obligation, then go to 3iii below.

3iii) If you’re here, then there was a failure to mark.  In this scenario, look at the claims and determine if you have any assertable method/process claims (any claim with elements ending in a gerund, i.e., “ing”).  As a general rule, the marking requirement applies to system claims, but not to method claims, so long as you only assert method claims in the litigation.  If the patent has method claims on which you can rely on a direct theory of infringement (I’ll discuss this in another post), then be sure to assert only the method claims.  If you assert only the method claims, then, depending on the jurisdiction in which you sue, you will not lose your six-year lookback period.

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